By Alexanser Mirtchev
To date, the extensive policy debate
over production of non-traditional fossil fuels, such as shale gas, and the
resulting possibility for the use of those resources by the United States has not
adequately focused on an important consideration: the geo-economic and foreign
policy implications and advantages to the United States, its allies, and global
economic security overall, stemming from these new fossil fuel resources.
New gas resources and exports of
liquefied natural gas (LNG) from the U.S. are an added economic resource, which
can allow the U.S. to mitigate its own and the reliance of many of its allies
in Europe on external sources of fossil fuels. Europe is extensively dependent
on gas imports, especially from Russia, as well as Algeria, Qatar and others.
According to the International Energy Agency, Europe depended on oil and gas
imports for over 60% of its demand in 2010, and this dependence is set to
increase to over 80% by 2035. At the same time, the external energy suppliers
to the EU have demonstrated their willingness to use the leverage of European
energy dependence for foreign policy purposes. Several times in recent history,
Russian disputes with countries through which those pipelines transit – most
notably disputes with the Ukraine in 2006 and 2009 –
have caused either actual supply shortages or fear of supply shortages to
Europe, which was sufficient to roil the local markets. The simple knowledge
that Europe depends on foreign gas has allowed exporters to use producer power
as a foreign policy leverage.
The preferred manner of transporting
gas to European markets has been pipelines, but currently only one meaningful
alternative pipeline route is being developed – from Azerbaijan to Europe – to
provide a check on Russian natural gas power. This raises the importance of LNG,
the other alternative form of supplying distant markets. Because LNG is
transported in vessels, supply is not limited by pipeline infrastructure but
instead can be delivered to various markets so long as LNG regasification
facilities exist. European countries such as Belgium, France, Italy, the Netherlands,
Portugal, and Spain currently import
LNG. Additional LNG regasification facilities and increased supplies of LNG on
the world market will increase European energy security. This is where the U.S.
is in position to become an adequate optional source of energy and energy
security for its European allies.
With huge supplies of natural gas and
the technical capability to produce large quantities of gas on a steady basis
for years to come, the introduction of meaningful volumes of U.S. LNG into
world markets will disrupt the current market, threaten the incumbents and
ultimately lead to the creation of a liquid global spot market for LNG. It will
not require duplicative infrastructure, only sufficient adjustments and
adaptation to ensure that loss of other suppliers will not constrain consumers.
Once European buyers are able to tap into liquid global markets rather than
long-term contracts with one or two suppliers, they will be less intimidated by
prospects of shutdown or other forms of manipulation of gas deliveries. The
mere availability of adequate LNG regasification infrastructure and supply may
be all that is necessary to prevent gas exporters from using natural gas supply
as geopolitical leverage, nudge them to take diversification seriously and spur
a wave of market reforms, contributing to the improvement of global economic security.
The geopolitical opportunities
presented by the shale revolution and the prospect of LNG exports cannot be
underestimated, and yet these considerations seem to rarely factor into the
current debate in the US about LNG exports. The economic rationale for
increased LNG exports from the US have been well documented. A recent IHS study
puts the increase in US industrial production at $252 billion by 2020, thanks
to lower energy prices in the US and other economic ‘spillovers’ from
unconventional oil and gas. The objections fall into two categories: (i) those
large US industrial consumers that benefit from low natural gas prices and thus
for parochial reasons want to limit demand by closing off export markets in
order to keep an imbalance between supply and demand that results in
artificially low prices; and (ii) environmental interests opposed to hydraulic
fracturing used to produce much US natural gas and who therefore want to close
off export markets in order to try to limit natural gas production. While the
economic case alone outweighs these objections, the case for US LNG exports
becomes even stronger when one further takes into account how US LNG exports
stand to advance US foreign policy, geo-economic and geopolitical interests.
Dr.
Mirtchev is an economist who frequently writes on global economic security and
energy issues.
No comments:
Post a Comment